What changed
RBI inserted paragraphs 27A and 27B into the IRAC Directions, allowing standard accounts to stay standard and NPAs to be upgraded upon implementation of a resolution plan under Chapter VI-A of the Stressed Assets Directions. New paragraphs 36D-36F mandate an additional 5% specific provision on outstanding debt for each restructuring under that chapter, with write-back allowed after 20% repayment without fresh NPA or restructuring. Paragraphs 40A-40B specify accrual-based interest recognition for resolution plan accounts, except cash basis for repeated restructurings.
What it means for you
NBFCs must now set aside extra capital (5% per restructuring) for accounts resolved under the new stressed asset framework, increasing provisioning costs. The ability to retain or upgrade asset classification provides relief for genuine restructurings, but repeated restructurings face stricter cash-based income recognition. This aligns NBFC norms with the broader resolution framework, impacting capital adequacy and income recognition practices.
What you must do
- Update internal IRAC policies to incorporate paragraphs 27A, 27B, 36D-36F, 40A, and 40B for all NBFCs.
- Calculate and set aside additional 5% specific provisions on outstanding debt for each resolution plan implemented under Chapter VI-A.
- Ensure interest income is recognized on accrual basis for first-time resolution plans, and on cash basis for repeated restructurings.
- Monitor borrower accounts to track 20% repayment threshold for write-back of additional provisions.
- Train credit and risk teams on the new classification and provisioning rules for stressed asset resolutions.
Who it affects
All NBFCs (systemically important and non-systemically important), NBFCs dealing with stressed asset resolution under Chapter VI-A, Credit and risk management teams at NBFCs, Auditors and compliance officers at NBFCs
Can a standard account remain standard after a resolution plan?
Yes, if the resolution plan is implemented in adherence to Chapter VI-A of the Stressed Assets Directions, the account can retain its standard classification.
What is the additional provisioning requirement for restructured accounts?
NBFCs must make an additional specific provision of 5% of the outstanding debt for each restructuring under Chapter VI-A, over and above prudential provisions, up to a ceiling of 100%.
When can the additional provisions be written back?
The additional provisions can be written back after the borrower pays at least 20% of the outstanding debt, without slipping into NPA post-restructuring and without another restructuring.